The housing crisis in the United States of the past several years has bought with it new regulations in mortgage practices. Banks now have to follow what the new mortgage lending rules really mean and enforce their practices. The rules are put in place to attempt to lower the amount of homes across the country going into foreclosure. The government is constantly reviewing rules initiatives to make home mortgages as safe as possible for both lenders and borrowers.
Down Payments For Home Loan
One of the new regulations is stricter rules on initial down payments. People purchasing a home will be asked to put down a larger chunk of change to secure home ownership. Anywhere from ten to twenty percent of the total purchase price is now expected at the time of closing. Twenty percent is the new common minimum down payment amount to purchase a home. Other loan options require less to be put down however.
What Are FHA Loans?
FHA loans require a lower down payment in return for following insurance purchases at the time of purchase or monthly. FHA stands for Federal Housing Administration, which is the governing body that regulates the loans. This type of loan requires three and a half percent down payment plus the addition of several insurance payments. These insurance premiums can be added to the entire loan amount or paid up front.
Before new mortgage lending rules, bankers were paid higher commissions for more work. Essentially a person who had trouble getting a loan was more work for the lender and in return they were compensated for their time. This made securing loans for people with poor credit more profitable for mortgage lenders. Lenders will now be paid the same amount in commissions no matter how much time or paperwork goes into securing the loan for a home buyer. This points out one of the biggest flaws in the old system. Lenders were more likely to give loans to people with poor credit, which may have led to so many default mortgages and foreclosures as a result.
With fewer incentives for banking lenders, people with poor credit are likely to not get a home mortgage or at least have to shop around for a long time before someone takes a chance on them.
Harder but Not Impossible
People attempting to purchase a home should know that they will need good credit and a down payment to make this deal work. In years before these were not necessary requirements. New government regulations to help limit the number of foreclosures make it harder to purchase a home. Ultimately people should have money saved up and have established credit before making a big life decision like home ownership.